I’ve been a journalist for more than 20 years writing about business one way or another. Everything I‘ve learned in all this time can be boiled down to one truth: finance, transportation, marketing, supply chain - no matter what the original subject is all roads lead back to sales.

Taxes, Apple's Profits and Why It Will Never Manufacture in the U.S.

In a previous life I used to write about tax issues and how tricky even sophisticated multinationals found it to navigate this area. To the uninitiated I say, be afraid, be very afraid. One of the advantages of a freelance life is that I can pick and choose what to write about, more or less. Not having to write about transfer pricing and multinational tax strategies, almost, not quite, but almost makes up for the miserly health insurance for individuals that is the lot of most freelancers.

So it is with great reluctance I introduce the subject of global tax strategies in regards to Apple, mainly because – spoiler alert – it sheds just a little bit of light on a seemingly unrelated question that drives U.S. politicians nuts and Apple denizens into a frenzy: why can’t Apple manufacture in the U.S.?

The New York Times covered Apple’s complex tax practices in this article, de rigueur reporting during tax season in which companies such as Intel, General Electric and so on are put under the microscope to find out how the heck is it that they are able to pay so little, comparatively speaking, in taxes.

$2.4 Billion Saved

This weekend it was Apple’s turn and the Times’ reporting was thorough.

Apple—and no one should be surprised by this given its creativity in product design and retail—has been a trailblazer in creating cross-border tax strategies that are so novel and innovative that they are being copied by other multinationals. (Lucky for them a law was passed last year prohibiting the granting of patents on tax strategies, but I digress).

These tactics saved Apple—and its shareholders– $2.4 billion last year, the Times said, citing a recent study by a former Treasury Department economist, Martin A. Sullivan.

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Shareholders and companies need to ask themselves… what is the limit / price to pay for all the extra profits ? We are not talking about the extra $ for the company to survive. This is all extra. They simply have forgotten what it is like to be “poor” and not enough food to feed the family (for the average American manufacturing worker)

Something to think about… are we willing to limit the number of jobs for ourselves and our kids ? Can I take this extra $ with me to the grave ?

As a tax attorney, I help even smaller and middle-sized companies find ways to minimize tax. Sometimes it requires changing States. Sometimes setting-up businesses in other countries. If US businesses cannot compete on a world scale, we are done for as a world economic and political power and our citizens will continue to suffer a decline in their standard of living.

The only solution is to cut back on government regulation and revise the Internal Revenue Code. We need a government that does not hamper our freedoms but instead promotes them!

Thanks for replying–don’t agree with everything you say especially the part of cutting back on government regulation. It seems like that is the business community’s knee jerk reaction to any problem. But what you said about shifting locations within the states interests me. Certainly high taxes and complex business environments have led to businesses fleeing one state for another–the exodus of business from California to Utah comes to find. I follow the competition states have for attracting headquarters, manufacturing operations etc especially the tax benefits and incentives they pay out to get a company, especially a marquee one. Every now and then I see a study that shows companies are, to a certain extent, playing off states against each other to get the best deal and that the states don’t derive that much economic benefits from the packages and incentives they offer when it is all said and done. Thoughts?

good comments Ronald…..Erika obviously has never dealt with gov regulations and has no idea how ridiculous they are. This is extremely sad and a good reason our population believes the fiction they do. As well, doing business in other countries is often in conflict with our regs and it severely hampers our business. After working in the semiconductor and technology industry in CA for 30 years, and having 100% of the manufacturing chased out…..not just for tax reasons, but for regs(chased to Oregon in the case of Intel)……dealing with Sarbanes Oxley and now Dodd-Frank(from 2 of the dumbest people in congress)……I have seen it all and heard all the propaganda by our politicians. When no biz is here, they may be happy. And then their complaint will still be “the big bad Cos need more regs and taxes”. Wait till O tries to levy taxes on foreign income. Many of the companies that left have already registered as foreign companies and have tax rates under 10% on all income and are generation thousands of jobs in other countries. The rest will follow. After all, if 85% of your business is in Asia, you may as well be an Asian company. Then our gov can tax the products coming in with tariffs and become the EU, driving the next wave of companies to leave!

and no regs caught any fraud in the bast 15 years….including Madoff and even in the case of Enron. The DOJ strong armed defendant into taking plea bargains and in several cases threatened some with an onslaught of prosecution should they not testify against others and lie which several refused and their careers were ruined even though they themselves never committed any crime. It was all a show…an after the fact show for any of the supposed crimes committed.

Well China is important to Apple, to a lot of companies like Caterpillar just to throw a name out. Interestingly Apple is making inroads in the China market with its devices, which is interesting because Samsung has been a top seller there and has a strong distribution network. But I know, I know, that wasn’t the gist of what you meant. Yes, Apple and China are strongly intertwined, especially on the sourcing and manufacturing side.

Corporations as currently defined are externalizing machines. In the US, Apples is more likely to need to pay more to obtain what they get from Foxconn. Therefore they go to get that service from a place where environmental impact, human rights, education etc. costs won’t appear. Sad thing is, they are not ‘saving money’ – they are just passing the bill to the future generations of people in some other country.

Shareholders have a clear path to demand from a USA company: 1- Maximize profits by externalizing and lowering as many costs as possible legally 2- When you need to do things that are not legal somewhere, just outsource them to somewhere it is. 3- If you can’t find such place, and you have cash, work with State Department to create those conditions.

While I don’t advocate paying taxes unnecessarily; here the tax avoidance is not only because of creative legal or financial maneuvering; it is create with rampant externalizations. If Apple got the full bill for the impact it’s having, it would rapidly go bankrupt.